United eyes tie-up with US Airways

CHICAGO - Moving quickly after being left at the altar by Continental Airlines, United Airlines has stepped up talks with US Airways and was moving toward an agreement yesterday that would combine the two airlines into the world's largest carrier.

UAL Corp.-owned United and US Airways Group Inc. are in advanced talks and are expected to announce a deal within weeks, two people familiar with the negotiations told the Associated Press.

Representatives of both airlines declined to comment on what they called rumors about a deal, which drove US Airway's stock up more than 20 percent and sent UAL's down slightly yesterday. US Airways shares jumped $1.46, to $8.62, while United shares shed 40 cents, or 2.6 percent, to $14.81.

United-US Airways and Delta-Northwest, if the two mergers are completed, would become the two biggest airlines, dropping AMR Corp.'s American Airlines from first to third.

Based on 2007 passenger traffic, United-US Airways would have a slight edge with 201.6 billion revenue passenger miles to 200.4 billion for Delta-Northwest. But the competition is too close to call in light of recent capacity cuts.

The United-US Airways deal became likelier after Continental stunned United on Sunday by ruling out any combination after in-depth talks that had been expected to result in a deal by the end of the week.

The two people familiar with the talks asked not to be identified because of the sensitive nature of the discussions. The timing of any agreement remains hard to predict, and either airlines could pursue an alliance or walk away, as Continental did.

United Chief Executive Officer Glenn Tilton, long an outspoken advocate of the need to consolidate, said in a recording for employees that "the dynamics in the U.S. airline industry continue to change" with Continental's announcement. "We continue to evaluate our options and will do what is right for United," he said, not mentioning US Airways.

Chicago-based United and Tempe, Ariz.-based US Airways Group Inc. have been in preliminary talks for weeks. As the second- and seventh-largest U.S. airlines by traffic, both are under more competitive pressure to consolidate in the wake of the April 14 announcement of the proposed merger between Delta Air Lines Inc. and Northwest Airlines Corp.

United and US Airways have a total of about 91,000 employees, more than 800 planes and annual revenues of $31.8 billion.

Other details of their talks were not immediately known, including what the merged airline would be called or where its headquarters would be. As the significantly larger airline, United probably would prevail in those decisions.

In contrast to a tie-up with Continental, whose route system was seen as complementary to United's, a merger with US Airways, which does not have the Atlantic routes United would like, would offer significant challenges.

But analysts say their routes overlap enough that United-US Airways would easily be able to cut capacity and get pricing power out of a deal.

The combination also is seen as having a much stronger chance to be approved by federal regulators under the Bush administration, which is viewed as friendly to business, than it would under a new president.

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